Investors Aren't Buying Höegh Autoliners ASA's (OB:HAUTO) Earnings

With a price-to-earnings (or "P/E") ratio of 3.7x Höegh Autoliners ASA (OB:HAUTO) may be sending very bullish signals at the moment, given that almost half of all companies in Norway have P/E ratios greater than 12x and even P/E's higher than 21x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Recent times have been advantageous for Höegh Autoliners as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Höegh Autoliners

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Höegh Autoliners.

What Are Growth Metrics Telling Us About The Low P/E?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Höegh Autoliners' to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 71% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the four analysts covering the company suggest earnings growth is heading into negative territory, declining 7.8% per annum over the next three years. That's not great when the rest of the market is expected to grow by 13% per year.

With this information, we are not surprised that Höegh Autoliners is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On Höegh Autoliners' P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Höegh Autoliners maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with Höegh Autoliners (including 1 which doesn't sit too well with us).

If you're unsure about the strength of Höegh Autoliners' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.